Shimano Company has an opportunity to manufacture and sell one of two new products for a five-year period. The companys tax rate is 30% and its after-tax cost of capital is 14%. The cost and revenue estimates for each product are as follows:

	Product A			Product B
Initial investment in equipment	$	500,000		$	650,000
Initial investment in working capital	$	95,000		$	70,000
Annual sales	$	470,000		$	490,000
Annual cash operating expenses	$	250,000		$	220,000
Cost of repairs needed in three years	$	55,000		$	80,000

The equipment pertaining to both products has a useful life of five years and no salvage value. The company uses the straight-line depreciation method for financial reporting and tax purposes. At the end of five years, each products working capital will be released for investment elsewhere within the company.

Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using tables.

Required:

1. Calculate the annual income tax expense for each of years 1 through 5 that will arise if Product A is introduced.

2. Calculate the net present value of the investment opportunity pertaining to Product A. (Round your intermediate calculations and final answer to the nearest whole dollar.)

3. Calculate the annual income tax expense for each of years 1 through 5 that will arise if Product B is introduced.

4. Calculate the net present value of the investment opportunity pertaining to Product B. (Round your intermediate calculations and final answer to the nearest whole dollar.)

5-a. Calculate the project profitability index for Product A and Product B. (Round your final answers to 3 decimal places)

5-b. Based on the profitability index of the two products, which one should the company pursue?